Mortgage Servicing Violations and Indiana Deceptive Consumer Sales Act

The Indiana Deceptive Consumer Sales Act can be used for Mortgage Servicing Violations. While the statute specifically excludes “consumer transactions involving real property”, mortgage servicing likely does not fall within the definition of a “consumer transaction involving real property” pursuant to Indiana Law. In McKinney v. State that Indiana Supreme Court held that construction contracts were not consumer transactions involving real property. Id. The court stated:

“We assume that the sale of an existing structure will normally be a transaction in real property under the Act. In this case, however, the buyers selected a model home to be built on a plot of land which they also chose and purchased. Judging from the affidavits, there was a separate “Building Contract” that did not involve the sale of land. The “Building Contract” was not for an existing structure and, for purposes of the Act, was therefore not exclusively a contract for real property. As far as can be determined from the record, each contract involved the assembly of a house and the provision of services to maintain the house. The contract explicitly says that “the Contractor agrees to construct for the Buyers a home.” Unlike the sale of an existing structure, which a consumer is at liberty to inspect for defects, the promise to build a structure forces consumers to rely on a variety of representations that the builder is far more capable of evaluating. Section 1(a) of the Act provides: “This chapter shall be liberally construed and applied to promote its purposes and policies.” Consistent with this directive, we hold that the construction contract at issue in this case was not a “transaction in real property” under the Act. Accordingly, the State may seek relief for both incurable and other deceptive acts of McKinney.”

Based on the rationale used by the Indiana Supreme court it can be argued that a mortgage agreement/promissory note is similar to a construction contract. Both contracts are ancillary to, yet separate from the purchase agreement executed by the seller and the buyer. Just like the construction agreement contracts to build a structure and is not merely vehicle to document the sale of real property, a mortgage agreement also only documents the financing of the real estate purchase and not the purchase itself.

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